Pipeline Fellowship hosted its signature conference last week at Goodwin Procter‘s midtown Manhattan offices. The conference’s focus was on angel investing, featuring speakers and panelists who ranged from serial entrepreneurs to seasoned angel investors and VCs.
Founded in 2011 by Natalia Oberti Noguera, Pipeline Fellowship aims to decrease the disparities in the entrepreneurial community through their bootcamp program, which has three major components: education, mentoring and practice. Since April 2011, Pipeline has trained over 70 women, who have committed more than $350,000 in investments. Pipeline has expanded from New York to Boston, Chicago, Los Angeles, San Francisco and Washington, D.C.
“Women often shy away from pitching a project because they believe they aren’t ready yet or fear they won’t receive the funding,” said Oberti Noguera, who stressed that you must put yourself out there and meet people; you have to build networks if you ever want to receive funding. According to Oberti Noguera, the goal of Pipeline is to give women the opportunity “to form actual questions and meet people who are doing it in ‘live in action.’”
According to the Center for Venture Research, out of all the startups that pitched to U.S. angels in 2012, only 16 percent were women-led, and of that 16 percent, 25 percent secured funding; only 6 percent were minority-led, and of that 6 percent, only 18 percent secured funding.
Oberti Noguera also noted that, in 2012, only 22 percent of U.S. angel investors were women, and only 5 percent were minorities. It seems the lack of diversity exits on both sides of the equation.
This year’s lead instructor at the conference was Catherine Mott, founder and CEO of BlueTree Capital Group and BlueTree Allied Angels, a network of private equity investors. Mott laid out the basics, explaining the difference between angel investors and venture capitalists. While both deal with due diligence, are sophisticated and understand deal terms, the key difference is that angels are investing their own personal money, whereas VCs invest other people’s money (pensions, etc.)
The first panel, titled “Angel Investing in Action,” featured Albert Wenger, Carol Curley, Anil Dash and moderator Vanessa Pestritto. The panelists were first asked how they got started as angel investors and what advice they would have given themselves.
Wenger, who is currently a partner at Union Square Ventures and has invested in successful companies such as Etsy and Tumblr, said that he first started out as an entrepreneur. He noted that, as a white male, he “started out on third base” and soon co-founded a venture that “tanked significantly.”
Wenger didn’t start angel investing until he made a successful exit. He realized he wasn’t a very good operator, but wanted to stay in the entrepreneurial world, so he decided to invest.
He also pointed out that the number one mistake among angel investors is they don’t see enough deals before they start investing. He offered this advice to the women present: try first to invest in things you know something about.
Moderator Pestritto, the program director of New York Angels, encouraged the angels to see lots of deals—as many as you can. “I tell my members [that] all the time…I push [them] to go to pitch events,” she said.
Collaboration is also important—you must learn to utilize your network. There is a social obligation of the network, Pestritto added, and “I have so much respect for investors who say no to good friends who ask for an investment [without a business model]…Stay who you are.”
The panelists were also asked how many deals they invest in per year.
Curley, currently a managing director with Golden Seeds, said she invests in three major deals per year, as well as multiple smaller, less-involved deals. On average, she deals with 10 to 15 active investments (seed and series D).
She urged the women not to “fall in love” with a startup and wind up over-investing, but rather to keep the investment proportionate to the deal size (i.e. earlier stage, smaller investment amount).
Throughout Lead Instructor Mott’s intermittent presentations, she often stressed the importance of management, saying that it’s all about execution. You need to choose to invest in a company with good management, with a founder who is coachable and has an ability to build and lead a team.
Mott compared this to the famous real estate saying: “Location, location, location.” For angel investing, though, the key is: “Management, management, management.”
Image credit: Photos 1 and 3 by Erica Torres. All others by Megan Maneval.
The second panel, “Discussion of Due Diligence,” featured Monika Mantilla, Murat Aktihanoglu, Ryan LaForce and moderator Jasmine Aarons (Aarons’ woman-led for-profit social venture VOZ secured funding from a Pipeline Fellow after she presented at the 2013 Bay Area Pipeline Fellowship Pitch Summit). The second group of panelists were asked how to assemble a due diligence team.
Aktihanoglu, an entrepreneur, investor, author and technologist, is the founder and managing director of Entrepreneurs Roundtable Accelerator. He suggested that angels should first consult a network of friends to look at opportunities and then talk to an expert. “Get a feel [for] if the company makes sense, where it stands in the market…[its] viability/sales,” said Aktihanoglu.
One of the attendants asked the panelists, “How thorough are the background checks? What is standard?” According to LaForce, an attorney in Goodwin Procter’s Business Law Department, the level of the background checks, as well as the cost associated, varies depending on the stage of the startup. In late-stage companies, background checks are one of the key costs—especially if they are going to be a core part of the management team. If a company resists a background check, that is a major red flag, said LaForce. You need to have a “thorough understanding of the people whom you are investing,” she added.
The third panel, “Structuring the Deal,” featured Tamar Gubins, Alessandro Piol, Ellie Wheeler and moderator Shaherose Charania. These panelists were asked to elaborate on the steps following due diligence.
Gubins, an associate in Goodwin Procter’s Business Law Department, stated, in regards to when an attorney should be involved in the deal process, that it depends on the level of comfort the angel has with the investment and her attorney. If you are less comfortable with the terms, utilizing an attorney is a great way to gain counsel free of charge until the deal comes through. Gubins added that you should strive to develop a great relationship with your attorney.
One of the attendees asked the panelists, “What are the pitfalls of the convertible note?”
Wheeler, a principal with Greroft Paycrtners, said that there are “certain times where [a convertible note] makes sense, and certain times where it doesn’t.” It varies based on personal preference but “shouldn’t be characterized as a ‘bad thing.’”
“Uncapped notes should be avoided,” she added. According to Forbes.com, uncapped rounds are more favorable to the entrepreneur; under this type of note, the investor has no guarantee of how much equity his or her money purchases.
“You lose control,” said Gubins..
The panelists also offered advice in regards to aspects of the investing world that angels shouldn’t stress over.
Piol, partner and co-founder of AlphaPrime Ventures and Vedanta Capital, said that when he first started out, he didn’t know anything about term sheets. They are the “most difficult and intimidating thing. Don’t worry about it…You will learn it by heart… [There are] always a number of terms you should know, but…[it’s] something you learn as you go. It’s part of the experience. There are a lot of bigger issues you should address, so don’t stress out too much over it.”
Wheeler, when asked about registration rights, asserted that they “are not worth spending any time on at all—very irrelevant. On the road to IPO, they get renegotiated.”
“Angels play a role more than just getting money,” Charania said, addressing Piol. “What would you expect the involvement or role of these angels [to be]?”
Piol answered, “[Angels] help companies in many ways they don’t realize they can…from legal issues to real estate issues to tech issues—there are many ways they can bring expertise to play, and that is well encouraged.”
Later in the event, Pipeline Fellows were able to gain hands-on experience, applying the lessons they had learned throughout the day by participating in a case study in which they valued a business and negotiated with an entrepreneur. No easy task and to be someone willing to take it on, you have to be something of, well, an angel.
Image credit: Photos 1 and 3 by Erica Torres. All others by Megan Maneval.